Perestroika For Continental Bank

June 13, 1991

Continental Bank upset taxi drivers Tuesday when it closed off the southern end of LaSalle Street to celebrate. Beneath arches of green and white balloons, Chairman Thomas Theobald served hot dogs, and employees literally danced in the street.

It was an apt moment to rejoice, well worth any minor inconvenience it caused cabbies and their fares.

For after seven years of first being propped up and then constrained by government ownership, the bank finally returned to being a private institution free to compete and, hopefully, grow like any other bank.

Critically hurt by bad energy loans and the lack of a diversified deposit base, the bank was taken over by federal regulators in 1984.

They injected more than $4 billion in taxpayer money to keep it from collapsing. Two years later, the Federal Deposit Insurance Corp. began selling shares in the bank to the public.

Continental`s management and the Federal Reserve Board had wanted the FDIC to sell its residual stake years ago. They wanted to free the bank from the stigma and uncertainty of federal ownership and end a regulatory squabble that prevented Continental from getting permission to make acquisitions and to enter new businesses. But the agency couldn`t bring itself to relinquish its final 26 percent until last Thursday.

In the end, the regulator`s loss in the bank bailout totaled about $1 billion, about half the original estimate. It was a decent performance by the agency, but why did it take them so long to get out?

Undoubtedly, L. William Seidman, who heads both the FDIC and the Resolution Trust Corp., the agency overseeing the savings-and-loan bailout, wanted to time any sale so as to get a respectable price for the Continental shares and to maximize the return to the nation`s taxpayers.

But the fact that it took so long for the agency to re-privatize the bank underscores the political pressure it is under from Congress not to make mistakes and helps explain why it`s going to be so difficult to clean up the savings-and-loan mess.

While it`s easy to evaluate shares traded on a stock market, it often is difficult to determine the value of real estate assets-even assuming that the owner knows what he holds.

The General Accounting Office this week told Congress that the Resolution Trust Corp. hasn`t been able to keep track of its growing inventory of real estate holdings and other assets seized from failed thrifts.

Continental is no longer a ward of the state. But if its experience is any indication, Washington is likely to be the nation`s largest real estate broker for many years to come.

That`s a very discouraging prospect in a country that`s trying to convince the Soviet Union to embrace private ownership and capitalism.